Santa Cruz do Sul the Brazilian Tobacco Capital

Santa Cruz do Sul the Brazilian Tobacco Capital

Built specially by German immigrants, the small city of 120,000 inhabitants is responsible for a big share of Brazilian tobacco exports – a total of US$2.459 billion in 2014.

By Kelly Stein

In 2016, it truly is no easy task to find a city somewhere in this world where everyone embraces the tobacco culture. Yet, this is precisely the case in Santa Cruz do Sul. With its gross per capita income 2.5 times larger than the entire state of Rio Grande do Sul, even those who are not huge fans of cigars and cigarettes are celebrating the tobacco industry.

The concentration of both plantations and tobacco processing plants in one place made the region very wealthy. According to the city’s PR bureau, Santa Cruz do Sul is the third largest employment generating city in Brazil thanks to its thriving tobacco industry. Just a telling example: Philip Morris Brazil (PMB) – an affiliate of Philip Morris International – is alone responsible for a whopping 47.56% of all taxes collected by the municipality (an average of US$235 million).

With an average of 120,000 inhabitants, the city is located 150km (about 93 miles) from Porto Alegre, the capital city of Rio Grande do Sul, and it was built with the profits of this industry. When compared to other cities in the region, Santa Cruz do Sul is an island of prosperity with a literacy rate of around 95%. It holds the biggest concentration of processing plants in the country. Souza Cruz, Philip Morris, and Dimon Tabacos do Brasil (the Dibrell and Tabra fusion) are some of the big players in the region.

The city was chosen to host all of PMB’s operations in 1998, and since then, the profits have been flowing in despite the bad economic and political climate that Brazil has had to face in the last few months. Later, 2010 was the year when the corporation expanded its businesses even further and acquired three tobacco leaves purchasing stations in Santa Cruz do Sul and in the cities of Canoinhas and Ituporanga (in the State of Santa Catarina). Having made this strategic move, PMB now buys tobacco from 7,000 producers in the region with no middlemen or brokers. The company deals directly with the source – the farmers. “In 2013, the company invested R$113.5 million (US$37 million) to build a brand new more spacious factory. The main goal was to unify all the production phases,” states PMB’s PR report.

In 2007, Souza Cruz bet on its growth and built a research and development center, which became the most modern and advanced research unit dedicated to tobacco in the world. Known as Regional Product Center Americas, it was part of an expansion plan that finalized two years later with an investment of R$130 million in 2009. It is located in a section of the industrial complex located in Cachoeirinha City (Santa Cruz do Sul region).

With a total area of 20,000 sq.m., the so-called “graphic project” is responsible for unifying diverse phases of tobacco processing. Controlled by British American Tobacco (BAT), Souza Cruz became one of the most relevant companies in Latin America. It started its operations in Brazil in 1903, and today it boasts 6,600 employees, 240 direct and indirect jobs, and 30,000 producers integrating the whole production chain, according to the report put out by Fundação Getúlio Vargas Rio de Janeiro Institution.

“It generates financial support for an average of 153,730 rural families,” states Souza Cruz PR report. “Its products reach 300,000 retailers and almost 5,500 municipalities, which evolved into the most complex distribution operation that BAT Group has and one of the biggest in Brazil.”

Santa Cruz do Sul the Brazilian Tobacco Capital

Benicio Albano Werner - AFUBRA president

With such a diverse investment portfolio enriching this market, the 65,000 producers, and – truth be told – the entire population of this region, have a lot to be thankful for, but above all for the fact that unlike many other regions in the country, they are virtually debt-free. According to the Tobacco Growers’ Association of Brazil (AFUBRA)’s president, Benício Werner, the association created a “mutual help system”. It covers any financial losses in the fields in case of such weather phenomena as flooding, frost, or any other problems as a result of bad weather that can compromise production.

“This was created in 1956, one-and-a-half years after AFUBRA’s inauguration, and it guarantees that producers won’t lose the work of an entire year with unpredictable problems,” explains Werner. To be insured, a producer has to to be part of the association and pay a symbolic amount of R$11 (US$3) per year.

Santa Cruz do Sul the Brazilian Tobacco Capital

Harvest, processing, plant nutrition, and seeds production of different types of tobacco are some of the sectors that are integrated into the local market. Everybody in the region is connected to this sector one way or another. For example, Profigen do Brasil developed expertise in producing high quality tobacco seeds. According to the sales and marketing executive, Flavio Hoff, Santa Cruz do Sul ships seeds to more than 30 countries on 4 continents. Hoff says, Profigen focused on new cultivars and variety enhancement processes that lead to the development of adapted hybrid cultivars.

In order to develop a new cultivar, it usually takes Profigen eight years of research and testing before it hits the commercial market. These new plants make the crop more predictable in terms of productivity and quality. “Adaptability to soil and climate conditions in South of Brazil and resistance to all major diseases are prevailing characteristic of the developed hybrids,” concludes the company’s PR report.

Santa Cruz do Sul the Brazilian Tobacco Capital

Tobacco Farms Profile for 2014-2015.

Even with its positive economic development numbers, the sector faces strong challenges to maintaining its growth. The anti-smoking campaigns are hitting the market quite hard and they are making an impact on the government, public organizations, and the media. As a result, high taxation of tobacco and numerous restrictions on tobacco consumption in various public places are the primary cause of a 10.5% drop in cigarettes sales. According to AFUBRA`s report, this number was even higher in 2014, when the drop in sales amounted to 24.7% as compared to the results of 2011.

And of course, just as it does in virtually every country and market anywhere in the world, overly-enthusiastic taxation promotes another well-known and incredibly pervasive problem: tobacco and cigarette smuggling.

A place to visit

Beyond tobacco production, Santa Cruz do Sul is a great place to visit. It hosts the biggest German festival in Brazil and the third largest in the world. Called Oktoberfest, the party promotes German traditions since 1984, with lots of beer, dance, and a strong emphasis on cultural aspects. Parallel to this celebration, local traders, farmers, and small industries in the region introduce their products and services in a big fair.

Culturally speaking, the city also holds one of the biggest festivals of amateur art in Latin America. Called ENART (Art gathering and Gaúcha* Tradition – Encontro de Artes e Tradição Gaúcha), it welcomes more than 2,000 artists and more than 60,000 spectators during its last phase.

As a sport center, the International Autodrome of Santa Cruz do Sul is one of the most modern circuits in Brazil and it received the Formula Truck (trucks races) and Stock Car.